Three steps to ensure you have enough money when you need it

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₹10 lakh per year each, with both spending 30% on expenses. A invests 40% of the take-home salary and has 30% going towards loans. B invests 20% of the salary and has 50% of it going towards loan repayment.

Assuming 10% p.a. return on investment (RoI) and loan interest at 9% p.a., at the end of 20 years, net of expenses and EMI, A will have ₹1.35 crore while B’s net worth would be negative ₹32 lakh. Clearly, saving money today may be painful but it does beautify life tomorrow.

The benefits of starting to invest early are well known. Increasing these investments by 10% every year has a snowball effect and will help build a substantially larger corpus. If A invests ₹15,000 every month in a systematic investment plan and assuming 12% RoI, at the end of 30 years, the corpus would be ₹4.62 crore.

If A steps up the SIP by 10% every year, the corpus at the end of 30 years would be ₹11.97 crore. Having a high equity allocation, especially for long-term financial goals, is becoming imperative. For all the brouhaha around equities, the percentage allocation at a household level is less than 10%.

At least 30-40% equity allocation is a must to be able to reach the large goal values. Sample this: ₹25,000 invested every month for 25 years will grow to ₹2 crore @ 7% versus ₹3.35 crore @ 10% p.a. The kicker in returns can come only from equities, that too when they are invested the right way through mutual funds and not by trading or buying random stocks.